DVDshrink can almost always leave you with no need for dual layer.
As for maintaining DVD quality assuming your machine(s) can take it you might want to look into H264 codecs with AAC audio (save the encodes that have to be (i.e. they are for someone else) all mine are x264 with neros aac in mkv), you can not reasonably use them in AVI though.
With regards to space my 40 min long encodes (i.e a TV episode) are 350 megs (I used constant bitrate just to test) @ 640x512 res and I do not feel the need to watch them with post processing. My film encodes (I did the Warrior king (a nice high action martial arts film) to test it can be CD size with the same res and to the untrained eye DVDs are the same, with post processing they are effectively the same.
The only downside is that they take a hell of a long time to encode even on a powerful machine (I normally do two pass encodes and it took my old laptop 18 hours to do 3 episodes, xvid would have likely done the entire 15 eps series) and the specs to decode are pretty steep as well, searching is your friend here but if your processor is P3 or older you are pretty much out of luck.
There are several almost fully automated (from DVD to as well as whatever file to) encoder GUIs, my favourite being meGUI (requires .net though) although I suggest you poke around
http://forum.doom9.org/ and
http://www.free-codecs.com/ as well as many of the other big video sites if you want another.